NEW YORK AND WASHINGTON
— Behind one of the most volatile periods in Wall Street's history - the financial equivalent of a volcanic explosion - several lessons are becoming apparent as investors sift through the dotcom ashes:

*The wild swings are sparking a shift in market psychology, with the high-flying tech stocks of the New Economy giving way to old-economy stalwarts.

*Small investors, who have poured billions of dollars into the markets, aren't being scared off the field of play - for now.

The volatility is coming at a time of stress in the markets, which are already struggling to adjust to higher interest rates. In addition, Microsoft, one of the market's biggest stocks, faces huge antitrust penalties.

Already this year, there have been 12 days when Standard &amp; Poor's 500 index - a broad-based market indicator - rose or fell by more than 2 percent, compared with none in 1995. The more volatile Nasdaq has lost 16 percent of its value in just two weeks. Between last June and March, it was up 104 percent.

Market's wild ride

This volatility came to a head on Tuesday, when both the Nasdaq and the Dow Jones Industrial Average went on a one-day, 500-point roller-coaster ride, finally ending with relatively minor losses. In four hours of trading, the market had shed $1.2 trillion in value. Last year, the US government spent $1.7 trillion.

The carnage even hit big, traditionally stable stocks. American Express lost $4 billion in market value on Tuesday alone.

Even while the market churns, analysts are trying to figure out what it means for average American investors: Will the steep drop in the Nasdaq keep Americans from buying luxury goods, such as new BMWs or ski chalets?

Have speculators been so burned that they will stop treating the markets like a giant casino?

Stock market analysts believe the Nasdaq drop won't cause too many sleepless nights at the Federal Reserve. Fed Chairman Alan Greenspan, in testimony, has warned about what he views as the overvaluation of some stocks.

"It's clear the Fed would like to see some sanity return to the market," says Heydon Traub, who heads asset-allocation strategies at State Street Global Investors in Boston. "Greenspan is happy to see a little correction in the most speculative area."

Despite the market correction, economists still expect to see the Fed raise interest rates another quarter of a percent when it meets on May 16, since there is scant evidence of a significant slowing in the economy.

Merrill Lynch &amp; Co. economist Bruce Steinberg estimates the economy is now running at a 5.5 percent annual rate - down from a 7.3 percent rate in the fourth quarter of last year. This is far faster than the Fed wants. To further slow the economy, he expects the Fed will raise interest rates two more times.

But the Fed is also likely to watch for signs that the market's decline is having a negative impact on the "wealth effect," that is, the way Americans spend money. In the past, Mr. Greenspan has worried that rising stock prices prompt people to buy luxury goods.

With the market down, some of the dotcom millionaires may curtail their spending. Mr. Richardson says that, at least among people who are playing the markets, there may be lower consumer demand.

"Certain people are taking more risk than their bank account or stomach could tolerate," he says.

Consumer confidence dips, slightly

One sign this might be coming true: On Tuesday, the Conference Board released the Index of Leading Indicators, which declined by 0.3 percent. Part of the drop was attributed to the decline in stock prices.

However, economist Brian Fabbri of Paribas Capital Markets says the market decline is not likely to cause too much change on Main Street.

"While there may be some deterioration of confidence, it's gone from exuberant to just plain comfortable," he says.

In fact, at a Charles Schwab branch in Washington, the market's recent sell-off met with a yawn from some individual investors. Ismail Elmas of Falls Church, Va., says he's not concerned about short-term drops.